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  • Writer's pictureBrett Weiss

Arbitration Clauses Take a Bite Out of Uber

Forced arbitration backfires on Uber

A cautionary tale on forced arbitration:

Uber’s platform Uber Eats allows customers to order takeout from various restaurants and have it delivered by a driver for a restaurant-specific delivery fee. Customers are required to agree to Uber's Terms of Use, which contains a provision stating that any dispute between the customer and Uber will be settled by binding arbitration administered by the American Arbitration Association in accordance with AAA's rules. After the death of George Floyd in June 2020, Uber announced that it would waive its delivery fee for orders placed at qualifying Black-owned restaurants from June 4, 2020, through December 1, 2020.

Shortly after, the law firm of Consovoy McCarthy PLLC began searching for Uber Eats customers who paid a delivery fee to a non-Black-owned restaurant during the relevant time and asking them to challenge the lawfulness of Uber's policy by claiming that it constituted unlawful reverse race discrimination. The law firm eventually filed more than 31,000 substantively identical arbitration demands with AAA against Uber.

In December 2020, AAA accepted and agreed to administer the claims according to its rules, which included a fee schedule for individual cases. According to the fee schedule, for each case, Uber would owe AAA a $500 filing fee, a $1,400 standard case management fee, and a $1,500 arbitrator fee, for a total of approximately $107 million if charged the full amount. AAA exercised its discretion as to the filing fee, and reduced it to approximately $4.3 million, which Uber paid.

The parties and AAA then engaged in months of fruitless negotiations to come up with a more efficient process for dealing with the 31,500 arbitration cases. Then in April 2021, AAA told the parties that absent an agreement between them, it would administer the cases pursuant to its rules, including invoicing fees according to the fee schedule—under which Uber would owe more than $91.6 million. Uber subsequently paid a total of $667,800, for the first batch of cases. When AAA issued an invoice demanding payment of $10.879 million for case management fees for the second batch, Uber sued AAA alleging that its invoicing was unlawful.

In a decision issued last week, affirming the trial court’s denial of Uber’s motion for a preliminary injunction, the court concluded: “While Uber is trying to avoid paying the arbitration fees associated with 31,000 nearly identical cases, it made the business decision to preclude class, collective, or representative claims in its arbitration agreement with its consumers, and AAA's fees are directly attributable to that decision.”

Notably, without Uber's forced arbitration provision, the customers would have had to pay any court filing fees and surely would have filed as a single class action. The big winner from Uber's forced arbitration provision is [drumroll] AAA.

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